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Motley Fool
Rule Maker Portfolio.


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This article was posted on June 1, 1999.

Effective Diversification Calculation
Motley Fool Rule Maker
No. Security Current
Value
(V)
Relative
Value
(R)
Beta
(V x R)^2 Comments
1 VMMXX $23,000 0.2300 0.05 0.00013 Vanguard Money Market Fund
2 CHV $3,300 0.0330 0.67 0.000489 Chevron
3 XON $3,600 0.0360 0.75 0.000729 Exxon
4 EK $3,600 0.0360 0.50 0.000324 Eastman Kodak
5 GM $3,300 0.0330 0.88 0.000843 General Motors
6 CSCO $9,200 0.0920 1.50 0.019044 Cisco
7 MSFT $8,700 0.0870 1.10 0.009158 Microsoft
8 GAP $7,800 0.0780 1.35 0.011088 Gap Stores
9 PFE $6,000 0.0600 1.05 0.003969 Pfizer
10 INTC $6,000 0.0600 1.00 0.003600 Intel
11 YHOO $5,900 0.0590 1.75 0.010661 Yahoo!
12 TROW $5,300 0.0530 1.60 0.007191 T.Rowe Price
13 AXP $5,100 0.0510 1.35 0.004740 Amer. Express
14 SGP $5,000 0.0500 1.15 0.003306 Schering-Plough
15 KO $4,200 0.0420 1.10 0.002134 Coca-Cola
- Total $100,000 1.0000 - 0.07741 = Sum(V x R)^2

Effective Diversification, D = 1/(SUM (V x R)^2) = 1/(0.07741) = 12.9

Non-market Risk = 1/(SQRT (D)) = 1/(SQRT 12.9) = 27.82%

100% Safe Withdrawal Rate = 2.98%

95% Safe Withdrawal Rate = 3.73%

90% Safe Withdrawal Rate = 4.05%

Note (1): Safe withdrawal rates based on 40 year pay out period.

Note (2): The $77,000 stock portfolio is composed of the Motley Fool Rule Maker stocks in thier approximate percentage of portfolio on May 12, 1999.


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Copyright 1999 John P. Greaney, All rights reserved.

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